Question 1

On January 1, Year 1, Retailer Co. adopted the Dollar-Value LIFO method. The inventory on that date was $200,000 (Base Year Cost).

At December 31, Year 1, the inventory at current year cost was $231,000. The price index for Year 1 is 1.05.

What is the Dollar-Value LIFO inventory balance at December 31, Year 1?

Accepted Answer

1. Deflate ending inventory to Base Year Cost (Current Cost / Index). 2. Compare to Beginning Base Year Cost to find the new layer. 3. Inflate the new layer by the current index. 4. Add inflated layer to beginning LIFO balance.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Forgetting to re-inflate the new layer; applying the index to the total base cost instead of just the layer.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 5

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